It was barely halfway through the year when the governor of the Bank of Canada decided to hike rates for the 11th time.
The similarities to today’s situation are alarming. During the pandemic, interest rates hit historic lows creating an easy-money feeding frenzy. For many Canadians, investing in real estate wasn’t just about finding a family home, it was seen as a can’t-miss opportunity to increase one’s net worth, as values rose by almost 40 per cent in Toronto from April 2020 to the February 2022 market peak.
If history is any guide, there is a chance prices could drop even more, as the crash takes on a life of its own and investors abandon a tanking market, propelling house prices down longer and further than many expect. During the pandemic, prices accelerated even more due to the Bank of Canada’s ultra low overnight rate, which drove mortgage rates as low as 1.5 per cent.
The oil dependent economy weakened as oil prices dropped and inflation fell below the Bank of Canada’s two per cent target. The bank, therefore, lowered its overnight rate to half a per cent in 2016 to stimulate spending in the economy, according to Cross. A 30 per cent drop in Toronto prices would bring prices back down to where they were in December 2020. For Cross, a 40 to 50 per cent home price decline — which would take prices back to where they were in 2015 — is needed in the country’s major markets to make real estate sustainable again.
“People have factored in interest rates and the stress test to see if they can qualify for a mortgage and it’s soured the market,” he said. “This will continue to push buyers on the sidelines.” Economists predict the Bank of Canada’s overnight rate will reach 4.25 per cent by the end of the year — up a quarter of a percentage point from earlier forecasts. The current overnight rate is 3.25 per cent.
“People will be facing the fastest interest rate increase since the 1990s, it’s been an incredibly fast move ,” he said. “It will stress a lot of homeowners.” “That’s the big issue,” Sialtsis said. “So far in my career I haven’t seen refinancing to this degree since I began in 2011.”
AstuteCitizen House prices will fall, sure. But crash In Toronto? Never!
Destroying Canada is very progressive
You know economists dont actually know anything…🤔🤷♂️
Previously priced-out young people may actually be able to afford a place now. People who have taken on too much debt will suffer the consequences of their actions. All-in-all, it's a good thing.
What if it’s way worse than the early 90’s 😬